EA’s CEO Bought Over 30,000 Shares

EA’s closest peers are Activision Blizzard, Inc. (NASDAQ:ATVI) and Take-Two Interactive Software, Inc. (NASDAQ:TTWO). Activision Blizzard has actually been profitable on a trailing basis, and is priced at 15 times its trailing earnings and 12 times expected earnings for this year. It also recorded double-digit growth rates of both sales and net income in the third quarter of 2012 compared to the same period in 2011, and might be a better place to look for value if an investor takes Riccitiello’s purchase as generally bullish on gaming. Take-Two is a potential value play- or value trap- at 6 times forward earnings estimates (though earnings in that period are likely inflated by the impending release of the next Grand Theft Auto game). 24% of the outstanding shares are held short.

Microsoft Corporation (NASDAQ:MSFT), which has a PC gaming business, and social gaming company Zynga Inc (NASDAQ:ZNGA) are also comparable companies. Analyst consensus is that Zynga will break about even this year, and the company does have a sizable cash position, but we would still avoid the stock. For Microsoft, we continue to be patient to see how strong the release of Windows 8 is; forward earnings estimates are likely skewed upward as many customers buy it and the new version of office, and so the P/E of 9- normally a good indicator of value- is not quite as reliable in this particular case. There has been some speculation that the product will not sell well and so we think it is appropriate to wait for hard numbers.

Disclosure: I own no shares of any stocks mentioned in this article.